An increase in long-run aggregate supply can be expected to ________ the price level and ________the natural rate of unemployment.
A) have no effect on; have no effect on
B) have no effect on; increase
C) decrease; decrease
D) decrease; have no effect on
E) increase; have no effect on

Question

Quizplus · Accepted Answer

An increase in long-run aggregate supply implies that the economy can produce more output at the same price level or the same output at a lower price level. This leads to a decrease in the price level, as there is now a greater supply of goods and services available in the economy. However, the increase in long-run aggregate supply does not affect the natural rate of unemployment, which is determined by structural factors such as demographics, technology, and institutional factors. Thus, the correct answer is D) decrease in the price level and have no effect on the natural rate of unemployment.

An Increase in Long-Run Aggregate Supply Can Be Expected to ________